Monday, October 25th, 2021
Happy Marvelous Monday!
I help teach people to earn money trading options. It isn’t hard. I explain in easy-to-understand terms when I teach or write a book—like we are talking across the kitchen table.
The Nasdaq was up and down throughout the week. Up 3 days and down 2. The Dow and S&P have reached all time highs while the Nasdaq is lagging in that accomplishment. Perhaps, it will reach it this week.
For updates on previous trades, please scroll down.
I am going to focus on the NASDAQ on Mondays and call it “QQQ Monday”. I will focus on QQQ which is the ETF covering companies traded within the NASDAQ Exchange Traded Fund.
For today’s discussion, we will be looking at Invesco QQQ Trust, symbol (QQQ).
Before analyzing QQQ’s charts, let’s take a closer look at the ETF and its services.
Invesco QQQ is an exchange-traded fund that tracks the Nasdaq-100 Index™. The Index includes the 100 largest non-financial companies listed on the Nasdaq based on market cap. These companies are often cut-edge tech stocks and trendier companies.
The image below is Friday’s price activity.
image is courtesy of FINVIZ.com a free website and gives a quick view of each day’s movement.
This is an image from Friday where it dropped throughout most of the day. The carpet shows a lot of red. Many of the symbols with 4 or 5 letters are included in the QQQs- AAPL, AMZN, GOOGL, etc.
Fibonacci Exponential Moving Averages (EMA)
Exponential moving averages (EMAs) reduce the lag seen in simple moving averages by applying more weight to recent prices. The weighting applied to the most recent price depends on the number of periods in the moving average. We are applying 8, 21, and 55 weekly periods for our entry signals. EMAs differ from simple moving averages in that a given day’s EMA calculation depends on the EMA calculations for all the days prior to that day. You need far more than 10 days of data to calculate a reasonably accurate 10-day EMA.
There are three steps to calculating an exponential moving average (EMA). First, calculate the simple moving average for the initial EMA value. An exponential moving average (EMA) must start somewhere, so a simple moving average is used as the previous period’s EMA in the first calculation. Second, calculate the weighting multiplier. Third, calculate the exponential moving average for each day between the initial EMA value and today, using the price, the multiplier, and the previous period’s EMA value.
Charting services like Stockcharts.com and your broker’s chart service figure these calculations for you.
As mentioned, entry signals are based on the use of 8, 21, and 55 weekly averages. (8, 21 and 55 are Fibonacci numbers which are a special sequence of numbers which are added together- 1+1= 2, 2+1=3, 2+3=5, 5+3= 8, etc. 13, 21, 34, 55, 89, 144, 233, 377, 600… As mentioned, we are zeroing in on 8 EMA (short term), 21 EMA (medium term) and 55 EMA (long term).
The details below show why this trade signal could produce a profitable trade opportunity.
Let’s See Why This Signal Potentially Offers Potential Trade Info
Each candle on the chart represents price movement over a 5-day (week) period. QQQ is apt to continue rising if the EMAs head higher in continue their uptrending order. In March and May this year, price pulled back toward the 21 EMA and then, bounced up off that area. The last 2 weeks price has been heading up, as seen above, the result is price rising toward all-time highs.
As long as the 8 EMA remains above the 21 EMA and the 8 and 21 EMA both remain above the 55 EMA, said to be in uptrending order, its current uptrend will remain intact, and price will continue to rise. If this week heads up, we will have a bullish final quarter of 2021. If it were to drop and have a weekly candle close below the 8 EMA, that would be a breech and then we would need to adjust our outlook. We will keep an eye on QQQ’s movement over the course of the couple weeks.
I will post a potential trade, but don’t consider following the trade unless price stays above 374. At this point, it is impossible to know how the market will open on Monday. Futures are up as I type. The overall bias is up, and the last candle says it wants to continue heading up.
I will list a potential bullish trade because of the possibility of this level holding again as it has in the past. If Monday is bearish (negative price move), don’t consider a bullish trade.
Potential Profit Play for QQQ
Last week, I expected an up week, and that is how it ended the day down on Friday, but when daily moves were combined, it closed up for the week. Price found support at the 8 EMA and closed the week up. If Monday continues the rise, a Call trade could be considered if price begins to rise above 374.
If you purchased 2 shares of the QQQs at 374, this would be an investment of 748. If price rose to 380, this is a profit of $6 per share or $12 or 1.6 profit.
If Monday is a bullish day, you could consider buying the November 5th expiration (Nov wk 1) and a 380 strike with a premium of 1.91 or $191 for the contract of 100 shares. If price rises to 380, this $6 gain would likely increase premium by $4, rising to $5.91 or $400 profit on the contract or a gain of 209%. This would be an awesome trade.
Options often offer a smaller overall investment, covering more shares of stock and potential for greater profits, as well as making money when the price of a stock drops.
Remember, you can take profit anywhere along the line, you don’t have to wait for the expiration date to sell. It is often wise to take profit when it is earned, especially in a volatile market.
If price drops below the support line, it can be wise to sell to reduce loss. As the expiration date nears, the premium will lose an increasing time value.
EMAs and line crosses are at the heart of most of my strategies. Many strategies come with a weekly newsletter listing numerous potential trade candidates.
I love teaching and sharing. It is my “thing”.
Yours for a prosperous future,
PS-I have created this daily letter to help you see the great potential you can realize by trading options. Being able to recognize these set ups are a key first step in generating wealth with options. Once you are in a trade, there is a huge range of tools that can be used to manage the many possibilities that can present themselves. If you are interested in learning how to apply these tools and increase the potential of each trade, click here.
Past trade update:
Last week, we discussed a possible Call trade with an expiration of October 29th (Oct wk 4), a strike of 375 and a premium of 1.59. Last week, it rose as high as 3.90 which is more than 100% gain in a week and it may rise a little more. During expiration week, time decay escalates.